Santander might be a great mortgage lender for permies on a PAYE salary. But for a contractor looking for a mortgage based on their gross contract rate or net profits? Then Santander is not the ideal bank for you…
…at least not if you want to buy a home that matches your earning capacity.
It can get complicated. Technically, a contractor could get a mortgage with Santander. And with the resources the bank has, you’d think it would be a safe bet:
But no. In this case, big isn’t beautiful. The bank’s advisors can only offer you a mortgage on a self-employed basis. Going that route, we know from experience, is both painful and demeaning to contractors. But there is a better way.
Using accounts to evidence income bypasses, rather than leverages, a contractor’s potential.
A Santander mortgage advisor would ask you for your accounts, two years’ worth at that. They’d then work out how much you could afford to borrow using salary and dividend drawings.
Contractors earning more than £35k a year use limited company payment structures. Or, more recently, umbrella companies.
But being tax efficient can gift you with a double edged sword.
On one side of the blade, you have an eye-catching, gleaming top line income. On the dull side, you show low salary and dividend drawings. Or, with umbrella contractors, convoluted payslips that untrained advisors don’t understand.
Either way, this conundrum will confuse advisers at non-contractor friendly mortgage lenders. Contractors could see a sizeable percentage of their income not considered in Santander’s affordability calculation,
That’s because they can see you earn good money…
…but their lending criteria can’t utilise the net profits in your limited company. Your low salary and dividends, or net pay (sometimes your SA302), is all they can use. These methods end in a reduced or uncompetitive mortgage offer, if one at all.
That “Ltd.” suffix on the end of your business name may add clout to your reputation. But it does little to enhance your mortgage affordability at Santander.
Your blade’s blind side is more liable to cut you than the clean, shiny side. And deeper, as it does with many High Street lenders.
Due to its presence, contractors still ask us about Santander contractor mortgages. Especially if they’ve had a mortgage with them as a permie, but want to move on.
Here are a couple of FAQs we can clear up here and now:My current mortgage is with #Santander. Now I'm contracting, should I #remortgage with them? Hell, no! Click To Tweet
There are two possible scenarios here. They depend on how long you’ve been contracting, rather than to do with your current mortgage.
If you’ve not been contracting for two years, you’re going to struggle. You have little history, few accounts and a short term contract.
In Santander’s eyes, you are too high risk to get a mortgage. That’s even if you’ve paid every repayment on time.
But if you have been a contractor for more than two years, you stand a chance. They’ll ask to see those two years’ limited company accounts. They’ll then offer you a self-employed mortgage if they like what they see.
I have to reiterate, a mortgage using accounts may not get you the funds your income deserves. If you’ve kept salary and dividend drawings low? Their offer will reflect those low figures.What's a #contractor to do when their Santander fixed rate ends? #Remortgage with a different lender! Click To Tweet
You have better options of securing a mortgage loan. Your contract income will help find more competitive ways to refinance a mortgage.
Your first port of call should be with a specialist contractor mortgage broker. But a word of warning: you’ll struggle to find such brokers on the High Street.
Specialist brokers deal with underwriters direct. Underwriters, in turn, work at a mortgage lender’s head office, not in-branch. And certainly not in call centres. But it’s this direct line to underwriting teams that you, as a contractor, need.
Underwriters are busy people. They don’t want to mess around trying to find your mortgage affordability from reams of documents. ISAs, savings, payslips or other means of evidencing income? They neither want not need to see them to see how much you can afford to borrow.
Underwriters want to see your affordability at-a-glance and be able to appraise it with 100% confidence. You may well have had a mortgage with them. But trying to remortgage with your contract doesn’t guarantee you’ll get a competitive remortgage offer.
A specialist broker will package your application so they don’t have to search for answers. It’s this extra step that makes all the difference.
There are many contractor-friendly lenders out there. But contracting remains a specialist niche on the High Street, despite its rising popularity. That’s why mortgage lenders treat contractors’ applications as high risk via any other route.
We’ve been trying to get Santander to adopt contract-based underwriting for years. So far, nothing. They won’t appraise contractors on their gross income or net profits, full stop.
Their sole response? Contractor mortgages are under review at Santander. If anything changes, you’ll be the first to know.
So do we recommend them? Not on its current Ts and Cs for contractors, but they may yet surprise us, in time. Fingers crossed.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.